CONSUMER MARKETING AND THE AIRLINE INDUSTRY

by William R. Roy Pan American World Airways

July 18, 1972

Abstract

A brief discussion on the fundamentals of consumer marketing as applied to the airline industry. An attempt will be made to boil down the mystique and jargon which frequently surround the subject of marketing. Topics to be covered include: (1) What is "the marketing concept"? (2) How do we find out what consumers want from an airline? (3) Once we know their wants, how do we plan "marketing strategy"? (4) What are the roles of advertising, sales, and middlemen in the process?

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https://ntrs.nasa.gov/search.jsp?R=19730024140 2018-08-26T14:02:50+00:00Z

Consumer Marketing In The Airline Industry

I am going to try to give you some perspective into key ele­

ments of consumer marketing. What it means, how it works, the

consumer value it creates.

Third point, frequently one of controversy, today it's popular

as part of surge of consumer advocacy to knock marketing's role in

the economy, to accuse marketing of creating waste and foisting un­

wanted goods on to an unsuspecting public.

sometimes I wish that marketing techniques had the powers that

the Nader's Raiders sooth sayers of gloom and doom attribute to it.

Unfortunately or fortunately, depending on your perspective, it does

not.

Defining marketing is a little like defining sex. It's intuit­

ively understood by the participants but damn hard to put into words.

The best definition I came up with trying to synthesize a number of

various veiwpoints is to say: "The business process by Which goods

and services move from the producer to the user."

As the economists say, "marketing creates place, time and

possession utility." In English, that means the marketing pro­

cessing enables a customer to find the kind of goods he wants

when he wants them and ideally at the price he is willing to

pay.

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In the airline industry this concept of time utility becomes

very important because of the perishable nature of our product. The

skill with which we pursue the consumer marketing process in our

industry makes the difference between seats going out empty or full.

When that plane is sitting on the apron, if we can't fill it, those

seats are going out empty and as a result we have lost our opportun­

ity to sell that particular component of our product.

Once we define what marketing is - moving goods from the pro­

ducer - we realize there are two ways of looking at the process -

from the producer's side or the consumer's side.

If we go at it from the producer's side, in other words, how

we are going to convince people to buy the product we have avail­

able, we don't really have a complete marketing process. We end up

trying to get the customer to want the goods or service we are sell­

ing.

The real marketing approach takes the consumer's viewpoint and

tries to figure what his wants and needs are. Then determine how our

product can fill those needs.

This is called the marketing concept - try to understand what

the consumer wants. This is a concept which is easy to pay lip ser­

vice to and hard to put into actual practice.

In my opinion, airline industry has not done a very good job in

this respect.

- 3 -

Because of airline scheduling, crew and equipment logistics, it's

often easier to fit the customer to our products than fit our products

to the customer. It's a little like Henry Ford's well-remembered

statement that the customers could have any color car they wanted so

long as it was black. We have had a bit too much tendency to do that

in the airline industry.

A good example of an enlightened marketing concept approach,

whether it was intentional or not, was the introduction of the

coach lounge. It gave the consumer a chance to get up out of his

seat, a rather confined space, walk to another area of the plane,

sit down, relax and move around the plane. So as I say, whether

it was intentional or not, this was a good example of the marketing

concept in action. There was knowledge on the part of various air­

lines that the consumer wanted more options on the plane and the idea

of developing the coach lounge gave more of these options.

Here are the ways I'd describe what it takes to get the market­

ing concept juices flowing. I see it as a five-part process. There's

nothing sacred about five. I am sure other marketing practitioners

could combine or subdivide the components differently and make it a

four-step or ten-step processing depending on their bent. These are

the five steps.

Beginning with marketing research and analysis, we must find

out what the customers' real needs and wants are. Most people don't

buy a garbage can for the aesthetic impact but so they have someplace

to put the garbage. 7D~

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Neither do most customers get on an airplane for the sheer ecstacy

of flying through the air. As Carl Ally, Chairman of Pan Am's Ad

Agency once put it: How may people would pay 250 bucks just to get

in a 747 for seven hours to have dinner and watch a movie while cir­

cling over beautiful downtown Newark? You get in a plane to go someplace.

Getting from point A to point B has value as far as the consumer's

concerned. It's that destination impact that is imperative if you

use a marketing concept in the airline industry.

Next, we've got to find out how well our product fills those

needs and how we stack up against the competition and their ability

to fill the same customers' needs.

Finally, a market analysis is needed to determine what our

chances of success are. There very likely may be cases in certain

product areas, and I keep referring to product areas because I think

of the aeronautical business as a product. It is generally referred

to as a service but I think you can justify calling it a product.

It competes for discretionary income just as other products compete

for discretionary income.

If certain customer needs are being filled infinitely better

by the competition, it's best to look around for some other needs

which our product can fill or to consider making some changes in the

product.

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One caveat on research - as a former airline research director,

I can take certain liberties in knocking research - the best research

is often that which confirms intuitive convictions. people close to

their industry generally have some idea of what customers think. Be­

ware of startling research results. All you might really have is a

piece of poorly executed or badly interpreted research.

I would put limited stock in Freudian-type research where an

airline would go out and administer a series of Rohrscharch tests

to customers and, based on that, determine what really makes people

fly. When the 747 first carne out there was a tendency in this dir­

ection. People said they were afraid of the 747. Some Freudian­

type researchers came up with the idea that people thought of the

airplane as womb. That people were afraid of the 747 because it was

unlike the intimacy of the 707 womb is a lot of bull. They were

afraid it couldn't stay up in the air and said so. If you ask

people directly and with some depth probes, most people will tell

you what they are thinking. Don't let anyone ever let yoa believe

that there isn't a fear of flying which some surprisingly frequent

travellers will tell you. We have had large numbers of travellers

who make up to 15 international and 40-50 domestic tr.ips per year who

·.,ill tell you that they still have a fairly fearful approach to fly­

ing. Many people feel that if man were meant to fly the Lord would

have given them wings and they are a little uneasy aboat it.

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So, in establishing marketing objectives, O[lce we know the

custOlTIe,r. needs, our own product strengths and weaknesses and com-

petitive potential, we begin the formal ':na;7keting planning process.

First we C!stablish marketing objectives - these are the basis

on '",hich we build our action. plan. Some examples would be: in the

case of Pan Am or TWA. to increase the sha:7e of the New York to Lon­

don Market by 15%. This is a competitive strategy. It is trying to

get a bigge:c chunk of the market at the expense of the competition.

Another kind 0::: objective is one that stimul"ltes primary dem~nd.

For example. to get 10% more wives to travel 'tlith h'lsbands O!l :llYC­

LAX Transcon. The sort of thing united has been promoting. This i>3

tryi:1.g to get peopV~ who are haraly in the marke't into the market.

So v"'; have two kinds of marketing objectives.

Objecti-ves need to be realistic. One of the problems that air­

line i'ldustr'j" and all Ll1dusl:r.ies face Ls this whole q11estion of mak­

ing the objective realistic. If we were to say that Pan Am should

get a 35% increase in the share of the NY/London market, that would

not be realistic. If an objective is unmeetable we should not come

up with it.

They also need to be reasonably specific. An objective that is

too vague, for example wanting to increase our share by 10%. that's

too vague to have much meaning.

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It is expedient that marketing objectives are consistent with

corporate objectives. That may sound silly but frequently a semantic

problem exists and all top management are not committed to the same

objectives.

In the airline industry, as with other industries where regu­

lation plays an important role, it is important that regulatory

policy is clear or serious conflicts will develop which ultimately

impact the company's ability to meet the customer's needs.

What's a strategy? It's a plan for meeting the marketing ob­

jective. There are four basic types of strategy. Let's take an

example of getting more wives to fly Transcon and follow that through

the strategy building process. First we use research to determine

what needs are present and what kind of product will best fill those

needs. Realistically, the airline seat is not the product. Trying

to sell the trip to California on the basis of the great airplane

ride is like trying to sell a new car on the basis of its great

tires.

user.

Price is, of course, a factor and we need to understand it.

Distribution means getting the product into the hands of the

Promotion covers all those things we do to tell people about the

product.

7/0

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The basic idea behind developing a product strategy is to figure

out how to make your product stand out from the competition. This in

trade jargon, is called product differentiation.

There are two components to product differentiation:

The first is the ease or complexity with which we can dev­elop unique product features.

The second is the importance the customer places on that feature in his decision-making process.

The chart shows the consumer value on vertical axis and ease of

developing unique product features on the horizontal. Note the color

shading -- assume this represents all the product features available

to consumers.

It's realtively easy to come up with the low-value unique fea-

tures like the kinds of costumes the stewardesses wear.

It's also easy to come up with the high-value items like a 747

but if one or two competitors also offer 747's, you hardly have a

unique feature.

What to strive for is that nugget of a product feature that

has a high-value in the consumer's mind and is also clearly unique

to our product.

DIFFERENTIA TING THE PRODUCT

711

HIGH

V A L U E

" , , " , , , , , ,

Intense color " shading to lighter ""

LOW

SIMILAR PRODU CT FEATURE

, , "

UNIQUE

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As a general rule the life cycle for new ideas is fairly short.

Particularly in the case of many of the things we will come up with

which are not patentable so the competition will emulate it very

quickly. The idea is to try to come up with unique features that the

competition will not be able to emulate.

For example, at Pan Am we stress the experience concept. We

know that it has one of the highest values in the consumer's decision­

making process. We also know that Pan Am enjoys a unique position

in this respect since no competitor can offer a product based on as

much international experience as Pan Am. This is one example of the

sort of things that are hard for anybody else to take away from you.

If the consumer begins to feel everyone is experienced and no one

stands out we have lost the edge that we had. This is one of the

reasons in the last couple of years for the basis of the world's

most experienced airline theme.

If we return to the example of getting wives to travel Transcom,

maybe not in-flight at all but at destination can be used as part of

a unique ground package featuring items of high value to wives like

a free visit to Elizabeth Arden's in LA. Something they won't get

from anyone else. It is enough to make the difference in their de­

cision making process. What I am leading up to here is, maybe the

decision-making process is not based exclusively on the in-flight or

airline experience. It is basic to the total travel experience.

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It is tied into this idea of the person's going to a destination.

He thinks about destination and is concerned in that respect more

than being concerned about what is going to happen in-flight.

Looking into your agenda, you have already had a lot on the

subject of pricing so what I would like to do is position it as a

marketing concept rather than going into details.

Under marketing concept, price is a function of what the user

will pay and whether the producer can recover his costs, including

a reasonable return on investment.

At the same time the consumer-oriented seller will be suffic­I

iently sensitive to market elasticity to determine what impact a

change in price will have on customer demand and this goes back to

the idea of the whole travel experience.

In the travel industry price in the consumer's mind is diff-

erent from price in an airline's mind.

The consumer is concerned about what the total trip will cost -

only to the extent that changes in air fares affect the total cost

is the customer going to be influenced. From the time he leaves his

door until he gets back - parking, meals, etc., pricing strategy

has to take the whole picture into account.

If the consumer perceives that there is a major cut such as the

winter 8-dayGIT'S we. had this past year in the Atlantic which result

in much lower total cost to him then price can impact his decision-

making process.

7/3

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QUESTION: Why do you think the airline consumer is smarter than

the automobile consumer who historically doesn't perceive the cost

of operating an automobile?

ANSWER: He isn't.

QUESTION: Why do you always talk about total costs in the airline

markets but nOL in the automobile?

ANSWER: I am not really talking about total costs in that respect.

I am talking in terms of a guy envisioning he is going to get some-

thing, he is going to get a travel experience just like he is buying

a new car. He is willing to invest $X in that new car. He is also

willing to invest $X in that travel experience. The costs of oper-

ating that car are not perceived because it is at smaller amounts

over a long period of time. If a guy is going to take an inter-

national trip and has to layout, let's say, $1500 that becomes very

real to him. If it is $1500 or $2000 he can discern the difference

between them. Again I am talking about differences in total expense -

not 40 or 50 dollars, but 20% or more change in the product he is

buying. One of the things we should light on here is to determine

the level of visibility. This is part of the pricing strategy.

Where does a company want to be in terms of pricing visibility. Do

we want to be one of the pricing leaders, taking the role of giving

some impetus to the industry in the way pricing should go. Do we

want to be part of the pack or do we want to drag our heels. This

is very important in terms of the role a company is willing to play

within its industry and really needs a basic strategy to position

that effectively. 1/4

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When we talk about distribution startegy or how we move the

product from the producer to the user, we first need an understand­

ing of the various steps that are involved in the process. While

airlines perform a service, for all intents and purposes, we can

think of the airline ticket as a salable product moving through a

distribution channel just as color TV sets, refrigerators, or fash­

ion clothing would move through a distribution network.

In the airline industry the channels of distribution are fairly

complex. We can sell an airplane ticket direct in our own sales

offices. Have it sold by another airline in one of their ticket

offices, have it incorporated as part of a wholesaler's package

tour, sell it through a travel agent or via commercial account.

As we can see from the following chart, frequently two or three

steps are involved in the distribution of the product. In the case

of a commercial account sale it might be either direct to the air­

line or through a travel agent or it might even be to a travel agent

who then goes to another airline, who actually writes the ticket

selling our product.

One problem fairly unique to the airline business is the vast

number of outlets through which a relatively high priced product

is sold. For example, in pan Am's case, worldwide there are roughly

17,000 travel agencies and 12,000 ticket offices belonging to other

carriers, all of which can write a ticket on Pan Am.

7/~

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These numbers make this distribution system fairly unique to the

airline industry. I was trying to think the other night of what

other large big ticket items like automobiles, color TVs, etc.,

the traditional sorts of things have distribution systems where

as many different outlets are involved in selling a product and it

is very hard to come up with anything. In most cases the big ticket

producers have franchised operation where only their product

is sold. In the case of GM cars - only GM cars will be sold through

a dealership. In the case of major appliances a dealer may carry

2 or 3 other competing brands but there really aren't any situa~

tions where, as there are in the airline industry, the retailer

carries a multitude of competing brands. For instance, in Inter­

national air travel, the travel agent will carryover twenty diff­

erent transatlantic carriers' tickets available. In other words, he

can write a consumer's ticket on any of those 23 some odd carriers.

He also has the ability to write on any of the domestic carriers.

So he is handling a multitude of different products.

I think Pan AM is fairly representative. We may be on the

low side. Someone like United who has more domestic offices than

we do might very well have more outlets for the sale of their pro­

duct.

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In the united states alone, there are probably an excess of

15,000 travel agent and airline ticket offices where you can buy an

airline ticket.

As a result, it's extremely difficult to control the sale of

the product the way producers of other big ticket items like TV's,

home appliances, or automobiles are able to operate through, in

many cases, franchised dealerships who feature either no competing

products or only one or two competing products.

In the airline's case, almost every travel agent can sell not

only all the competing domestic carriers' tickets, but also all the

competing international carriers' tickets. This makes it extremely

rough to develop any form of exclusivity with the middlemen who

sell your product to the ultimate user.

Back to the example of the wives to L.A. Assume we develop

a tour package with unique features -- HOW do we get the work to

possibly 60,000 sales people in 15,000 retail points, especially

when our product is one of maybe 250 others we offer and maybe 2,000

offered all together by us and our competitors?

Our distribution strategy must be able to cope with the kind of

situation which results when Mrs. Smith goes into her friendly

travel agent and asks about our special wives package.

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This takes us to the fourth strategy which is promotion.

Because of the limits in the air travel distribution system, pro-

motion becomes a key ingredient in the attempt to make potential

customers aware of your product and its features.

Essentially, there are four kinds of promotions:

Advertising, which includes radio, TV, newspapers, maga­zines and trade publications.

Sales promotion, which includes everything from direct mail to letters to folder racks, to motion pictures of travel destinations. to window displays.

Sales development is a form of missionary sales activity in which we use opr headquarters and local sales people to work with key travel agents, travel agency associations, commercial accounts and the like to keep them aware of our product's capabilities.

Finally, word of mouth is an important form of promotion. A satisfied customer is one of the best forms of advertising or promotion an airline could have. From research we found that first-time travelers frequently depend on recommendations from friends, relatives, doctors, or dentists in making a decision on where to go, where to stay, and what airline to use.

Let me spend a few minutes on what promotion can or cannot do.

Promotion vehicles, like advertising, sales promotion, etc., can be

used for either a push or pull effect. What does this mean? Pull

type advertising and promotion means developing awareness, interest

or preference for our product in the mind of the consumer so that

he in fact goes into a retailer and asks for our product. In effect,

we are using promotion to pull our product through the distribution

channel.

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Push promotion, on the other hand, is the kind of promotion

aimed at getting the middleman to promote the virtues of our pro­

duct to the end user.

Trade advertising, direct mail to middlemen, and the mission­

ary sales development activity are three of key ways in which we

build enthusiasm for the product among middlemen. A fourth method

which is frequently used in other industries and is known as push

money, or special incentives to sell a certain product, is illegal

insofar as air transportation is concerned. Many tour wholesalers

selling package tours do, however, give retailers a special override

commission on the land package for selling large quantitites of

their tours.

One word on advertising -- advertising has been one of the

most maligned of the promotional vehicles available for use. No

question that advertising has in the past occasionally been used

to mislead the consumer. However, when one reviews the various

theories on consumer buying behavior, he finds that a key to the

consumer's ability to make a buying decision is the information

which he can obtain on the product and its features.

Advertising is, in the final 'analysis, one of the least expensive

ways of providing product information to the consume~.

7/9

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The idea that advertising can, through subliminal means,

force the consumer into buying products he doesn't want or need

is pure garbage. The most advertising can do is make a customer

more aware of the ability of a given product or service to fill

the customer's needs. Now, in all fairness, let's admit that these

needs may be somewhat latent and advertising a product feature may

help to bring them to the surface. But advertising per se cannot

create the basic need.

Maybe this wife who is going out to the West coast really

wasn't chafing at the bit until she saw the ad that said now you can

go and experience this glorious time with Elizabeth Arden and your

husband will now accept you, and you can do it at a low cost. That's

basically appealing to her latent desire to get out someplace - to

make herself look different so her husband will think of her as

newly married. It is not building a need within her, it's simply

bringing that need a little more to the surface.

Once we have developed our four strategies -- product, price,

distribution, and promotion -- we're ready to bring them together

into the overall marketing mix.

By marketing mix, I mean the way we combine the various mar­

keting tools to move the product or service. For example, in some

cases, we might use more advertising and less missionary or devel­

opmental sales effort.

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We might depend more on low price to sell the product or we might

concentrate on unique product features.

Frequently, if the porduct doesn't move very well, we make

adjustments in the mix like a little more advertising or other

forms of promotion.

Since departure time, in the airline industry, is a product

feature, we might decide to make minor changes in this area.

However, whenever, major changes in the mix appear to be needed,

it is appropriate to pause and review the marketing objectives

and strategies to determine whether a more fundamental rethink

is necessary.

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Measuring the Results:

This is the area most frequently overlooked. It is important

as part of the planning process to establish measurement criteria.

How are we going to measure success? What level of success means

we have a hit? How bad do we let things get before we declare a

miss?

After the fact decisions on what constitutes success are also

dangerous since they frequently result in lowering our standards

for success or failure. Once we are three months down the road and

we see some of the problems that exist we are not quite so apt to

say we need $X million before declaring this a success. This is

unfortunate because the thinking that went into the process orig­

inally is the thing that should be used to measure that.

Without-pre-established measuremnt criteria it's also hard

to determine whether minor modifications in the marketing mix

can have the proper effect.

That sums it up. I congratulate you on wading through this

exercise with me. As I recall, one of the fundamentals of learning

theory says if an indvidual can remember 10% of what he hears, he is

doing quite well.

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The 10% of our visit together here today that I hope you remem-

ber is:

marketing begins with the customer:

consistent sucess depends on_ finding a product or serv~ce that fills his needs:

start with research and analysis to determine what the consumer wants, how the product is positioned in the market place and how we have to modify our product, if necessary to meet those consumer wants:

establish realistic marketing objectives, things we are striving for in that process:

develop strategies on: products, price, distrbution and promotion:

Based on these strategies create a mix of marketing elements,

activate the marketing process, hopefully to achieve success but

also to establish, ahead of the game, the measurement criteria that

we are going to use in measuring the success. It seems to me that

the airline industry has a long way to go compared to other big

ticket item products which implemented the marketing concept in a

big way a number of years ago. That sounds a little pessimistic.

On the optimistic side in the last few years I have seen what I

consider to be quite an increase of marketing interest in the air-

line industry. I predict that we will see in the next decade a

real growth in the marketing concept in the airline industry as it

becomes more consumer oriented. In my next talk later on this morn-

ing with Dan Colussy, I will explore that in more depth.